1. Challenge to the constitutional validity of Section 12A(4) of the Bombay Sales Tax Act, 1946, regarding forfeiture of tax collected on non-taxable interstate sales. (Para 1 , 2 , 3 , 4 )
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1967 Supreme(SC) 240
SUPREME COURT OF INDIA
K.N. WANCHOO, C.J.I., R.S. BACHAWAT, V. RAMASWAMI, G.K. MITTER AND K.S. HEGDE, JJ.
Kantilal Babulal and Bros., Appellant
Versus
H. C. Patel and others, Respondents. The New Shorrock Spg. and Mfg. Co. Ltd., Intervener.
Civil Appeal No. 126 of 1966,
D/- 29-9-1967.
Advocates Appeared
Mr. K. R. Chaudhuri, Advocate, for Appellant; Mr. R. M. Hazarnavis, Senior Advocate (M/s. K. L. Hathi and S. P. Nayar, Advocates, with him), for Respondents; Mr. S. T. Desai, Senior Advocate (Mr. I. N. Shroff, Advocate, with him), for the Intervener.
Advocates:
I.M.SHROFF, K.L.Hathi, K.R.CHAUDHARY, R.M.Hajarnavis, S.P.NAIR, S.T.DESAI
I.M.SHROFF, K.L.Hathi, K.R.CHAUDHARY, R.M.Hajarnavis, S.P.NAIR, S.T.DESAI
A statutory provision allowing the forfeiture of property as a penalty without prescribing a fair procedure for enquiry or adjudication is arbitrary and constitutes an unreasonable restriction on the fundamental right to hold property, violating the principles of natural justice.
Headnote:(A) Sales Tax Act - Section 12A(4) - Constitution of India - Article 19(1)(f) and Article 286(1)(a) - Forfeiture of tax collected in excess or in contravention of law - Validity of provision - A provision that allows for the forfeiture of amounts collected by a dealer as a penalty without prescribing any procedure for enquiry or adjudication is arbitrary and unguided - Such a provision violates the principles of natural justice and constitutes an unreasonable restriction on the freedom to hold property. (Paras 9, 10, 11, 14)
(B) Fundamental Rights - Reasonableness of restrictions - Whether a restriction on a fundamental right is reasonable depends on both the substantive and procedural aspects of the law. (Para 14)
Facts of the case:
Registered dealers effected sales outside the state which were not exigible to tax. Despite orders from various appellate authorities directing refunds of taxes wrongly levied, the sales tax officer threatened to forfeit the amounts under a statutory provision that allows forfeiture of tax collected in contravention of the Act or in excess of the amount payable. The dealers challenged the constitutional validity of the said forfeiture provision after the High Court dismissed their application.
Findings of Court:
The impugned provision is void as it is violative of the right to hold property. It provides for forfeiture as a penalty but fails to lay down any procedure for ascertaining the factum or amount of collection, nor does it contemplate any adjudication or reasonable enquiry.
Issues: Whether the provision allowing for the forfeiture of tax collected in contravention of the Act, without providing for a procedural enquiry, is constitutionally valid or if it violates the freedom to hold property.
Ratio Decidendi: Penalizing a person without a proper enquiry is abhorrent to justice and violates the principles of natural justice. Since the provision confers unguided and arbitrary power to forfeit property without a quasi-judicial process or a reasonable opportunity for the affected party to be heard, it is an unreasonable restriction on the fundamental right to hold property.
Result: Appeal allowed.
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2. Revenue contended the provision is a penal measure incidental to the power to tax; appellants challenged it as violative of the right to hold property. (Para 8 )
3. The provision allows forfeiture without a prescribed enquiry or adjudication, rendering the power unguided, arbitrary, and violative of the principles of natural justice. (Para 9 , 10 , 11 , 12 , 13 , 14 )
4. A penal provision allowing forfeiture of property without a fair procedural enquiry is an unreasonable restriction on the fundamental right to hold property under Article 19(1)(f). (Para 9 , 14 )
5. Appeal allowed; High Court order set aside; mandamus issued for refund of tax and restraint against proceedings under Section 12A(4). (Para 15 )
6. Is a provision requiring the payment of tax collected by mistake a taxation measure?
No. Such a provision does not impose a tax but requires amounts collected by mistake or otherwise to be paid to the government, and is not ancillary to the collection of legitimately due tax. (Para 7 )
7. Why does the forfeiture of tax under Section 12A(4) violate Article 19(1)(f)?
It violates the freedom to hold property because it provides for forfeiture without any procedure for ascertaining the amount collected or a reasonable enquiry where the dealer can prove their case. (Para 9 , 10 , 12 )
8. Does the lack of a procedural mechanism affect the reasonableness of a law restricting fundamental rights?
Yes. The reasonableness of a legislative restriction on fundamental rights under Article 19 depends as much on the procedural aspects of the law as on its substantive part. (Para 14 )
9. What is the legal character of the power to impose a penalty under Section 12A(4)?
The imposition of a penalty is quasi-judicial in character; however, Section 12A(4) treats the process as purely administrative, making the power unguided, uncanalised, and arbitrary. (Para 11 , 14 )
Judgement
HEGDE, J. :- The main controversy in this appeal by certificate is as to the constitutional validity of Section 12A (4) of the Bombay Sales Tax Act. 1946, to be hereinafter referred to as the Act. As in our judgment that provision is void, the same being violative of Article 19 (1) (f) of the Constitution, we have not thought it necessary to examine the other contentions raised in the appeal.
2. The facts material for the purpose of deciding the question formulated above, are these: The appellants are dealers registered under the Act carrying on business in art silk, cotton and handloom cloth. During, the period January 26, 1950 to March 31, 1950, the appellants effected various sales outside the State of Bombay. As those sales were protected by Article 286 (1) (a) of the Constitution, they were outside the reach of the Act. But yet the sales tax officer assessed the turnover relating to those sales. The tax levied in respect of that turnover was Rs. 4,494-3-9. In appeal, the order of the sales tax Officer was affirmed by the Assistant Collector of sales tax. But the Additional Collector of sales tax, in revision revised the levy to some extent and ordered a refund of Rs. 2,238-0-6. That amount was paid to the assessees. Not being satisfied with the order of the Additional Collector of sales tax, the appellants took up the matter in revision to the Sales Tax Appellate Tribunal. But even before they moved the tribunal in revision, the Additional Collector of sales tax by his letter dated May 17, 1958, informed the appellants that unless they furnished to the sales tax Officer proof of their having refunded the amount Paid to them in pursuance of his order to the purchasers within a period of three months from the date of that notice, the same would be liable to be forfeited under Section 12A (4). The tribunal by its order dated November 26, 1958, allowed the claim of the appellants in full and directed the refund of an additional sum of Rs. 2,256-2-6.
3. During the period April 1, 1950 to March 31, 1951 the appellants effected various sales outside the State of Bombay. The turnover relating to those sales was also brought to tax by the sales tax Officer and in that connection a tax of Rs. 23,806-3-6 was levied on the appellants. In appeal, the assistant collector of sales tax allowed the appellants claim in part alla ordered a refund of Rs. 12,154-15-0 but at the same time he informed them that that amount would be forfeited to the State Government if not refunded to the purchasers from whom the same had been collected. Not being satisfied with the relief obtained, the appellants went up in revision to the additional collector of sales tax. That officer by his order dated November 1, 1958 granted further relief by ordering refund of an additional sum of Rs. 3,588-1-9. But the sales tax officer did not give effect to that order. As the additional collector did not accept the appellants claim in full, they went up in revision to the tribunal. The tribunal allowed their claim in full. The Revenue took up the matter in reference to the High Court but that reference was rejected. From the foregoing it is seen that in respect of the period April 1, 1950 to March 31, 1951, the appellants are entitled to get a refund of Rs. 23,806-3-6 Despite the aforementioned orders, the sales tax officer did not pay the amounts ordered to be refunded. On the other hand, he threatened to take steps to forfeit the same by having recourse to Section 12A (4).
4. On June 27, 1962, the sales tax Officer called upon the assessees to remain present in their office on July 2, 1962 with particulars of the amount collected by them by way of sales tax from the purchasers in other States during the period January 26, 1950 to March 31, 1951. At that stage, the appellants approached the High Court of Gujarat by special civil application No. 641 of 1962 under Article 226 of the Constitution. In that application, they prayed for several reliefs, the most impo
